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TheDumbMoney (54.96)

Fed Policy is Probably Helping You, Too

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February 02, 2012 – Comments (8) | RELATED TICKERS: SPY

I posted this on my blog, because I can link that to my Twitter account:

"There is so much complaining about Fed policy and how it is “financial repression” a PIMCO (TM), and how it is a “war on savers.” Pish-posh. Not only is Fed policy not the problem, but rather a symptom, it also is likely to produce several long-term positive impacts as well.

I should admit, I sent about six tweets to PIMCO the last time it talked about this, last week. I did the same to Doug Kass, and he blocked me last week. So, to help prevent myself from trollishly responding to people on Twitter, I’m writing a blog post instead....

The rest is in this link.

Cheers,

DTAF

8 Comments – Post Your Own

#1) On February 02, 2012 at 1:34 PM, leohaas (33.49) wrote:

OK, 2 observations.

1) Six tweets? Man, that is stalking. Be happy they are just blocking you and not hitting you with a restraining order!

2) Telling only half the story? That is very common. Only scientist when writing for colleagues typically list all arguments on both sides. Journalists are also supposed to do this, but often fail. Get used to it. In the mean time, thanks for providing the other half of the story.

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#2) On February 02, 2012 at 1:47 PM, TheDumbMoney (54.96) wrote:

;-) 

Well, to be fair, it was six tweets in a row because I couldn't say it in the word limit.  But that's why I'm blogging instead.  I only recently joined Twitter, and I'm working on my Twitter etiquette. 

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#3) On February 02, 2012 at 2:15 PM, TheDumbMoney (54.96) wrote:

COOL!!!!!!

Abnormal Returns linked to me!!!!!!!!!!!

 http://abnormalreturns.com/thursday-links-sell-side-blues/

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#4) On February 02, 2012 at 4:12 PM, whereaminow (45.39) wrote:

The Fed also saved us from ravenous zombies that were sure to overrun America if the Fed "did nothing" and we had "financial armegeddon". (I put "did nothing" in quotes because the Fed can't actually do nothing. It is always by nature doing something, even when it's doing nothing.) 

Phew!

Or, it could be like the Bear Tax from the Simpsons. We don't see any bears around, so the Bear Tax must be working!

These things are called specious arguments.

David in Liberty

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#5) On February 02, 2012 at 5:23 PM, whereaminow (45.39) wrote:

The Indebted: The last time I checked, we have a lot of debt in this country. Private consumers have been deleveraging, mostly by defaulting on non-recourse mortgages. (I recognize they are still highly leveraged, cumulatively.) Deflation would harm these people, because deflation makes current fixed debt more difficult to pay off.

Let's assume you have real deflation (not the made up stuff), where the money supply actually contracts by 5%, just to pick a number. (Btw, what would that put the US dollar index at? 2008 levels? Hysteria!! Zombies in the streets!!)  There is no magic deflationary number that makes the world fall apart, just as there is no magic inflationary target that makes the world all kittens and ribbons (inflation targeting is, like other things, an arbitrary concept wrapped in objective value theory, which was proven fallacious over 100 years ago.)

Prices do not fall and rise uniformly. If they did, two things would be true: 1. there would be no point manipulating the money supply, and 2. a general price level would actually be a real thing rather than a stastical construct.

In a deflationary environment, if costs are falling faster than revenue, what happens? You gain wealth. If your costs fall 8% and your revenues fall 3%, how ya doin?  Not bad. 

Likewise, an inflationary environment is not all puppies and starships if your costs rise faster than your revenues.

Of course, debtors do prefer an inflationary environment. Why wouldn't they?  You get to pay back debts accrued when the dollar was valued at X with a dollar valued at X-amount debased.

Every debtor since the Egyptians liked having his debts wiped away, either through outright forgiveness or inflation. This is nothing new.

But the short economic lesson above teaches us that the debtor can survive just fine in a deflationary environment if he is able to structure his other costs so that they are falling faster than his revenue.  In other words, debtors will not turn into zombies and eat us alive if the Fed "did nothing."

David in Liberty

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#6) On February 02, 2012 at 7:43 PM, TheDumbMoney (54.96) wrote:

Hi David,

I confess I don't have time for a debate this evening.  Suffice it to say we agree that, at least beyond a certain level of inflation, "an inflationary environment is not all puppies and starships".

All best,

DTAF

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#7) On February 02, 2012 at 7:53 PM, whereaminow (45.39) wrote:

Hi,

What do Bill Dudley and Richard Fisher think?

Earlier this week I reported that New York Fed President Bill Dudley owned over $1 million worth of Treasury securities whose interest climbs with increasing price inflation.

Now comes
word that Dallas Fed president Richard Fisher owns over $1 million dollars of gold.

HT to Robert Wenzel, the best econ blogger on the web.

David in Liberty

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#8) On February 02, 2012 at 9:20 PM, TheDumbMoney (54.96) wrote:

I mean it when I say I have no time!  :-)  I'm not just being aloof.

DTAF

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